Buyer’s Credit refers to loans for payment of imports into India arranged on behalf of the importer through an overseas bank
Based on letter of undertaking of Importer’s bank, Overseas bank credits the nostro of the importer’s bank.
Importer’s bank uses the funds and makes the payment to the Suppliers bank against the import bill on due date.
Benefits of Buyer’s Credit
- The exporter gets paid on due date; whereas importer gets extended date for making an import payment as per the cash flows.
- The importer can deal with exporter on sight basis, negotiate a better discount and use the buyers credit route to avail financing.
- The funding currency can be in any FCY (USD, GBP, EURO, JPY etc.) depending on the choice of the customer.
- The importer can use this financing for any form of trade viz. open account, collections, or LCs.
- The currency of imports can be different from the funding currency, which enables importers to take a favorable view of a particular currency.